GST Order Without Personal Hearing Remanded, But Petitioner Must Deposit 100% Tax Due to Delay Tactics.

GST Order Without Personal Hearing Remanded, But Petitioner Must Deposit 100% Tax Due to Delay Tactics.

Issue

Whether an adjudication order passed without granting a personal hearing (despite a reply being filed) should be set aside, and if so, whether strict conditions for pre-deposit can be imposed on the petitioner for unnecessarily prolonging litigation by filing rectification applications instead of statutory appeals.

Facts

• Assessment Period: 2019-20.

• Proceedings: The GST department issued a Show Cause Notice (SCN) in Form GST DRC-01.

• Petitioner’s Response: The petitioner submitted a reply to the SCN.

• The Violation: The proper officer passed an adverse assessment order after considering the reply but without affording a personal hearing to the petitioner.

• Post-Order Conduct: Instead of filing a statutory appeal, the petitioner attempted to challenge the order by filing an application for rectification of error under Section 161. This attempt was unsuccessful.

• Writ Petition: The petitioner approached the High Court, arguing the violation of principles of natural justice due to the lack of a personal hearing.

Decison

• The High Court set aside the impugned order and remanded the matter back to the adjudicating authority.

• Violation of Natural Justice: The Court acknowledged that passing an adverse order without a personal hearing (especially when a reply was filed) violates Section 75(4) of the CGST Act.

• Petitioner’s Conduct: However, the Court took a serious view of the petitioner’s conduct. It observed that the petitioner had prolonged the litigation by filing Section 161 applications, knowing well that the scope of rectification is strictly limited to “errors apparent on the face of the record” and cannot substitute an appeal on merits.

• Strict Condition: To balance the equities, the Court directed that the petitioner must deposit 100% of the disputed tax amount as a condition for the remand.

• Outcome: Upon such deposit, the petitioner is entitled to be heard afresh.

Key Takeaways

• Personal Hearing is Mandatory: The right to a personal hearing under Section 75(4) is absolute when an adverse decision is contemplated, even if a written reply has been submitted.

• Misuse of Section 161: Taxpayers should not use Rectification applications as a delay tactic or a substitute for the appellate remedy. Courts view such procedural maneuvering negatively.

• Cost of Relief: While the Court cured the legal defect (lack of hearing), it penalized the petitioner’s delay tactics by imposing a 100% deposit condition, which is significantly higher than the standard 10% pre-deposit for an appeal.

• Strategic Lesson: It is often safer to file a statutory appeal with a 10% deposit than to risk a writ petition where the court might use its discretion to impose a much heavier financial burden.